The Smart Profits Report Issue #490
Thursday, January 24, 2008 By Karim Rahemtulla, Investment Director, Smart Profits Report As the sun set on Monday night and the U.S. futures markets turned a nasty shade of crimson, the Federal Reserve loaded its gun and fired the bullets into the market early this morning, blasting 0.75% off the federal funds interest rate. Because of the move, the widely anticipated market meltdown today wasn't as bad as many feared. But while the Fed's move might have eased the problems a little, it certainly hasn't fixed them. The question is: What does all this mean for us - the smarter investors? Is it time to go into 'portfolio protection' mode? Are there investment sectors that will ease the pain of an economic downturn? Protect Your Investment Portfolio, But Don't Fight The Fed There is an old Wall Street adage: "Don't fight the Fed." The Fed already set the table for an interest rate cut a couple of weeks ago when Chairman Ben Bernanke proclaimed that, "... | Top Investment Sectors | Basic Materials
Conglomerates
Consumer Goods
Financial
Healthcare
Industrial Goods
Services
Technology
Utilities |
additional policy easing may be necessary. We stand ready to take substantive additional action as needed to support growth and to provide adequate insurance against downside risks."And with the stock market having kicked off 2008 in disastrous fashion, many expected Bernanke's boys to act ahead of their scheduled meeting on January 30-31. They reacted to the global meltdown Tuesday morning with force.
The pump is well and truly primed - and this means you shouldn't look to next week, but look forward a few months. There will be another liquidity-led boom. This is not to say there won't be any pain in the months ahead. While this morning's cut may have saved the stock market from Armageddon today, it's merely papering over some large cracks in the U.S. economy - ones that can't be filled by simple monetary policy tools. Investors are unhappy, and account values have dropped significantly. But that doesn't mean we should just sit back and watch...
Story Continues Below Investment Sectors Offering Some Of The Best Opportunities for Portfolio Protection Nowhere is this truer than in the financial sector. Here, all companies are trading as if they were one. Investors are paying no heed to those that are better managed, shelling out fat dividends, buying back stock, or experiencing the most insider buying in a decade. All that goes out the window, as the masses focus on the unknown. That sounds absurd, I know. But fear is the new King Of Wall Street. That means the companies in the strongest financial position and those that scoop up repeat business, no matter what the economy is doing, are in the best position to combat the upheaval. For example, after the huge down move Tuesday morning, one sector rallied into the downdraft: Financials. It has since moved a little lower, but not nearly as much as would have been expected given the overall downturn. My colleague and healthcare expert Marc Lichtenfeld has also noted that the healthcare sector offers some excellent "recession-proof" potential. Just last week he wrote about investing in the healthcare sector. In addition, while the downturn or recession plays out, it's always worth having some strong dividend-yielding stocks in your portfolio - the cash-rich companies that will actually pay you. Xcelerated Profits Report readers know what I'm talking about here. Our diversified portfolio consists of financials, healthcare, technology and dividend-yielders. We just put the finishing touches on the February issue, containing new recommendations on a huge, dividend-yielding healthcare firm and one of the biggest technology firms. Find out more information for yourself. Protection From Perceived Crisis I'm not saying it's easy to stomach wild downward moves - we'll probably see more of them. But one trading day - or even 10 trading days - is a mere blip on the screen in hindsight. If you judge a market's worth based on a few hours of trading you're making a big mistake. I've witnessed times like this on many occasions and the situation will look different in time. The common theme in almost every market downturn, those who panic when they should be rational and sell on emotion when they should buy usually miss the opportunities that the market presents during overdone selloffs. But out of perceived crisis comes opportunity - and it's during a time of mass panic that the real money can be made. Those who stay the course - and even have the guts to buy strong assets at even cheaper prices - will come out ahead. To profitable investing, Karim Rahemtulla P.S. Here at Smart Profits Report we try our best to keep you updated with different sectors, opportunities, and strategies. If you like what you read, but aren't sure where to go with it, check out our page of resources that could help you take the next step. Today's Smart Profits Action Center: - "Appreciable risks to downside growth remain." That's Fed-speak for, "We need to make a move - and fast." But it wasn't so much what the Fed said in its brief statement this morning; it was more what it did. The monetary policy board voted for the emergency 0.75% interest rate cut in an 8-1 vote, symbolically doing so before it holds its regular meeting next week. The lone objection came from St. Louis Fed President William Poole, who didn't think the action was justified before the meeting. Tell that to investors! If the market fails to respond, the bankers may well make a further move at next week's meeting.
- It's rare to see the Fed, Treasury Department and both houses of Congress on the same page. But that appears to be the case. Last Friday, President Bush approved a $150 billion package of tax relief and incentives in order to kickstart the economy back to life. And that number could rise. Both Bush and Treasury Secretary Henry Paulson are discussing the proposal with congressional leaders in an attempt to come to a quick resolution.
Related Articles: Investing In The Fear Effect: How To Buy Bargain Stocks When There's Blood In The Streets
Bear Market Investing: Don't Get Burned By Bears... Here's Your Five Point Plan
Contrarian Investing: The Best Investment Strategy You Should Use Today Smart Profits Report Archives | 
